Debt Sustainability Analysis for Companies

Abstract

Debt financing can be defined as borrowing money without giving up ownership. Debt financing often comes with strict conditions or covenants in addition to having to pay interest and principal at specified dates. Debt "sustainability" is the ability of a company to meet its debt obligations without requiring debt relief. In this working paper we have developed a Debt Sustainability Ratio that companies can use to determine whether it can sustain the burden of its debts or not. Using this ratio the management of a company can take important decisions to meet their future financing needs.

Keywords: financial analysis, debt sustainability, debt analysis, ratio analysis